The current financial year, with the onset of the country’s first female Finance Minister, has seen a lot of revisions in the way banks and financial institutions function, along with certain economic reforms.
Here’s another one for you that is certainly not the last one, now that the year is about to come to an end. Last month, the Finance Minister Nirmala Sitharaman announced that the government was planning to put up legislation on increasing the insurance cover on bank deposits from Rs 1 lakh, the current bar, during its winter Parliament session.
Considering that subjects even remotely related to insurance, shows a ripple effect on almost every habitant of the country, let’s learn more about this ‘alleged’ news.
‘No Information’ On Raising Insurance Limit, Yet
Last month, the Finance Ministry was pitched for an increase in deposit insurance limits to Rs 5 lakh for individuals, by Sahakar Bharati, as non-profit with many of its office bearers close to the RSS.
As an assertion to their request, the Finance Minister Nirmala Sitharaman announced that the government plans to look over the situation of increase in the insurance cover on bank deposits from the current Rs 1 lakh, during its winter session of Parliament.
However, as per the Deposit Insurance and Credit Guarantee Corporation (DICGC), which is a wholly owned subsidiary of RBI declared that there is no information and requisite information on any proposal or move under consideration to raise the limit of Rs 1 lakh insured in the bank.
DICGC and its Take on Insurance Cover
In response to all the declarations made by the finance ministry above, the DICGC said that the if a bank fails or gets liquidated, it shall pay each depositor through the liquidator, the amount of their deposit but only upto Rs 1 lakh as insurance cover, regardless of the amount in their accounts.
The corporation covers all commercial banks, including branches of foreign banks functioning in India, local area banks and regional rural banks. It also covers all the eligible cooperative banks, defined in Section 2(gg) of the DICGC Act,
According to DICGC, each depositor in a bank is insured up to a maximum of Rs one lakh as on the date of liquidation/cancellation of bank’s license or the date on which the scheme of amalgamation/merger/reconstruction comes into force.
Bank Frauds Leading to a Stale Response
The weak response regarding the said decision of increasing the insurance limit from Rs 1 lakh, is understood to comply with the numerous instances of different banks becoming victim of frauds, putting at risk the savings of people.
Taking an instance of this, we would like to mention the case with PMC Bank, a Maharashtra based financial institution. On September 24, the RBI imposed operational curbs on this bank and appointed an administrator, which led to the detection of alleged financial irregularities.
The Mumbai Police’s Economic Offences Wing (EOW) said that the PMC Bank management concealed huge loan defaults by HDIL group firms from banking regulators, as it was allegedly in cahoots with a business family. Since over 70% of the bank’s advances went to HDIL group, there was a huge crisis when the realty group defaulted on repayment.
Government owned banks have reported frauds of over Rs 95,700 crore in the first six months of the current fiscal. According to RBI, the number of frauds reported by Public Sector Banks (PSBs), from April 1, 2019 to September 30, 2019 counts to 5,743, involving a total amount of Rs 95,760.49 crore.